Deficit Commission: Tinkering Around the Edges

Whether it was intentionally jumping the gun to give us a flavor of what we can expect or inadvertently leaked, a draft copy of the report from the National Commission on Fiscal Responsibility and Reform found its way to the New York Times and other media outlets this week. This came as a bit of a surprise since the report itself isn't due until December, and while the draft is marked “Do Not Quote, Cite, or Release,” it appears the pundits have already disregarded the advisory.

So in doing a quick layman's analysis of the report, the claim made is that it balances the budget by 2037 -- in part by making $4 trillion in deficit reduction over the next decade -- and fixes Social Security for the next 75 years by making needed reforms and slowly advancing the retirement age to 69 before the end of the century. They also aim to offset the cost of the “doc fix” for Medicare by making a series of cuts through savings and lowering reimbursement rates.

In the report, they show “illustrative” spending cuts which can be made over the next five years to both defense and domestic spending. Overall, the report creates a sketch of what could be done to address the deficit if Congress had the spine to follow through on the recommendations, with the hardest sell likely to be the changes to Medicare -- especially in the wake of the fight over ObamaCare.

More fascinating to this observer, though, are the proposed changes to the tax code, best described as making a series of tradeoffs. The architects of the plan have three different options, including a simple option of a “haircut” on deductions if suitable reforms aren't enacted by 2012.

The other two options follow fairly similar lines. One plan reduces the number of tax brackets to three, with differing percentages -- they could run as low as 8% for the poorest Americans to as high as 28% for our wealthiest taxpayers and for corporate earnings, depending on which items remain as deductions. The more deductions eliminated, the lower the rate goes. It's probably as close as we can get to a flat tax.

Another option is similar, but somewhat more complex. In return for simplifying the brackets to three (15%, 25%, and 35%) and lowering the corporate tax rate to around 26 percent, a number of cherished deductions such as cafeteria plans and deductions for state and local taxes go away. We would no longer face the alternative minimum tax but would lose the interest deduction on home equity loans, second homes, and large mortgages. The idea for all of the options is to limit the collections to a point where they no longer exceed 21% of GDP.

Perhaps the worst revenue option presented is a call to increase the gasoline tax in stages totaling 15 cents a gallon, presumably to fund transportation projects.

Yet in reading through the report, a number of questions and observations jumped out at me.

It seems to me the last time the GOP took over Congress the debate between Republicans and President Clinton over the deficit was whether the budget could be balanced in five, seven, eight, or ten years. Now we are talking about a full 27 years before balancing the budget!

The most immediate question springing to mind is just where there could be compromise on this package, or whether a final version of the report will actually see the light of day -- it takes a 14-person supermajority of the 18 members of the commission to approve the report, with the membership being selected by President Obama and congressional leaders of both parties. Quite possibly this release may have occurred due to the prospect of gridlock on the commission, which was created by an executive order back in February when the Senate balked at passing their own version due to partisan rancor.

Even more curious is the timing. The original report was due December 1, but with a lame-duck session of Congress beginning next week perhaps the aim was to give exiting Democrats, especially the now-endangered species of “Blue Dogs,” a blueprint to enact the entitlement fixes in order to use them to campaign against Republicans in 2012. Obviously Republicans will gravitate toward items they'd prefer to see, like tax reform, once their majority arrives in January.

And there are a lot of cuts left off the table in the report. Conservatives have wanted to see the Department of Education lopped off the federal budget along with smaller cuts such as National Public Radio, the National Endowment for the Arts, and various green energy-related subsidies. In fairness, these smaller items may come under a catchall category of “options of $2 billion or less” as part of the $100 billion in domestic spending cuts, but many will see this a barely a first step.

However, the end result of this commission will likely be the same as the output of many other panels, think tanks, and small group musings done over the years. Inside of a year or two it will likely be collecting dust on a shelf somewhere in the bowels of Washington as Congress continues its spendthrift ways, figuring out methods to postpone the day of reckoning even further.

While there are some good ideas enclosed within the pages of the deficit commission's report, to me it doesn't exactly exhibit the kind of outside-the-box thinking our nation needs to address the problem. Perhaps it's because there was no room for average Americans on the panel; instead the issue is addressed by many of the same people who got us into the mess in the first place.

It's the definition of insanity to do the same thing over and over again while expecting a new result. But insanity is seemingly all Washington knows, and chances are the best solutions in the commission's report will be the ones passed over.